Difference between DSCR, LLCR and PLCR

Difference between DSCR, LLCR and PLCR

DSCR (Debt service coverage ratio) measures the ability  to pay the debt in any particular year. A debt service ratio of 1.3 means that for a total debt and interest obligation of $ 100 the free cash flow available to service the same is $ 130. The higher ratio gives more comfort to the lenders and it becomes easier to obtain a loan. A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat.

DSCR = [CFADS over Loan Life] / [Debt Balance b/f + Interest repayment]

DSCR = (Annual Net Income + Amortization/Depreciation + Interest Expense + other non-cash and discretionary items (such as non-contractual management bonuses)) / (Principal Repayment + Interest payments + Lease payments)

Loan life coverage ratio measures the ability of the borrower to repay an outstanding loan. The Loan Life Coverage Ratio (LLCR) is calculated by dividing the net present value (NPV) of the money available for debt repayment in the loan repayment period by the amount of senior debt owed by the company.

LLCR = NPV [CFADS over Loan Life] / Debt Balance b/f

The PLCR is similar to the LLCR – it is the ratio of the net present value (NPV) of the cash flow over the remaining full life of the project to the outstanding debt balance in the period.

LLCR = NPV [CFADS over Project Life] / Debt Balance b/f 

Mortgage, Hypothecation and Pledge

Mortgage, Hypothecation and Pledge- These terms are used for creating a charge on the assets which is given by the borrower to the lender as a security for any loan.

	Pledge	Hypothecation	Mortgage
Type of Security	Movable	Movable	Immovable
Possession of the security	Remains with lender (pledgee)	Remains with Borrower	Usually Remains with Borrower
Examples of Loan where used	Gold Loan, Advance against NSCs, Adv against goods (also given under hypothecation)	Car / Vehilce Loans, Adv against stock and debtors	Housing Loans

A letter of credit is a Bank direct undertaking to the supplier to pay. In contrast in Bank Guarantee, the bank pays only when the buyer is unable or unwilling to pay. In case of LC the liability solely rests on the bank so a LC is less risky for the merchant but more risky for the bank.

For detail please refer http://www.castleconsultants.in/pdf/LCAndBGComparisionCastle.pdf

A letter of credit can also be defined as an obligation given to a bank so that a criteria can be followed before payment is made. As soon as the terms from both parties have been confirmed and completed, it is now the bank’s role to transfer the funds.A letter of credit ensures payment for performed services

Just like a line of credit, a bank guarantee is being used to insure a sum of money to its beneficiary. It is actually a type of guarantee wherein a bank or another lending organization makes the promise to repay their debtor’s liabilities in the event that he is unable to do so.

Standby letter of credit

http://articles.economictimes.indiatimes.com/2014-02-11/news/47235798_1_indian-bank-india-bank-leading-private-bank

Tax liability

Calculation of net tax to be paid in project finance case

Calculation of corporate tax calculation (CTL)

Step 1. Calculate PBT (for income tax purpose) = PBT+ Book depreciation –Tax Depreciation

Step 2. CTL= if (mat year(80IA)=Y or PBT <0),0, PBT (for income tax purpose)*tax rate )  

Step 3. MAT liability= PBT (Book Dep)*MAT rate

Step 4. Tax liability without MAT credit=Max(MATL, CTL)

MAT Credit earned in this period= MAX(0, MATL-CTL)

Cumulative MAT Credit Available=

MAT Credit Utilized in this period=IF(CTL>MATL),(CTL-MATL),(0))

Step 5. Net tax paid= if (MATL>CTL, MATL, CTL-MAT Credit utilized in the period)